Kenya: Rotich spent most of taxpayers’ money on salaries and debts

In the 11-months to May, National Treasury Cabinet Secretary Henry Rotich spent nearly all the tax collected on items that can’t spark economic growth.

For every Sh100 that the Kenya Revenue Authority (KRA) collected during 2018/19 financial year, about Sh61 went pay interest, salaries and pensions leaving very little for development activities such as building hospitals and supplying them with drugs. If you add principal payments, the country gave creditors a total of Sh870.6 billion, enough to bankroll counties for two financial years. This brought the tally of recurrent spending to Sh1.33 trillion.

And with total tax revenue of Sh1.29 trillion, Rotich was forced to plunge into the debt market again borrowing to repay maturing debts during this period. Borrowing from Peter to pay Paul, technically known as refinancing, has been defended by The Treasury as a standard practice within financial circles. In May, Kenya issued a Sh210 billion Eurobond – a dollar – denominated sovereign bond- to refinance part of the 2014 Eurobond of Sh78.3 billion.

Earlier in March, the country had contracted a syndicated loan of Sh125 billion, which was used to repay another syndicated loan of Sh78.7 billion from Standard Chartered Bank. An increase in recurrent spending has meant little money is left for development. For example, in the period under review, the Government spent Sh470 billion on development, against a target of Sh573.9 billion.

The government’s strategy to cut spending has been a double-pronged attack on the public wage bill and debt skyrocketing debt levels.

Public wage bill

Going forward, for external financing, Rotich said in his budget statement for the current financial year, the government will rely on Official Development Assistance, such as from the World Bank, which is offered on high concessional terms. To tame the ballooning public wage bill, the CS introduced a raft of austerity measures targeting civil servants.

Besides freezing further recruitment of civil servants — except for key technical staff, security personnel, teachers and health workers — the Government will also not extend the service of thousands of civil servants set to retire after attaining the age of 60. Moreover, The Treasury announced plans to weed out ghost workers.

The Integrated Payroll and Personnel Database (IPPD), a payroll system introduced in the 1990s and touted as effective for processing loans and advances, and ensuring recovery, will also be discarded for the Integrated Financial Management System (IFMIS) Human Resource Module. Pension, which Rotich regretted had increased by more than three times in the last 10 years from Sh25 billion in 2008/09 to Sh86 billion in 2018/19, will also be reformed.

“To address the challenge of the rising pensions budget, we have finalised a new National Pensions Policy and the Public Service Superannuation Scheme (PSSS). This scheme, which will be rolled out in 2019/20, will ease the pension burden on the exchequer and free resources for other critical national priorities while at the same time ensuring that the pension budget remains sustainable,” Rotich said.

But corruption and wastage have also been a deterrent to the country’s development goals. A recent report on infrastructure needs in Kenya by credit rating company Moody’s found that the country under-performs similarly rated peers, particularly in the control of corruption. “The report found climate is supportive of growing infrastructure investment, but concerns over corruption and transparency remain. Persistent issues around corruption will be a concern for large, capital intensive infrastructure investment requiring years of planning, land negotiations, permits and regulatory approvals,” said the report.

Through the multi-agency  task force, the government has been tackling illicit finance and contraband in a bid to increase revenues and make the business environment more conducive.

Source: The Standard